Melting ice Caps and the Economic Impact of Opening the Northern Sea Route

Abstract

One consequence of melting Arctic ice caps is the commercial viability of the Northern Sea Route, connecting East Asia with Europe. This represents a sizeable reduction in shipping distances and average transportation days compared to the conventional Southern Sea Route. We examine the economic impact of opening this route in a multi‐sector Eaton–Kortum model with intermediate linkages. We find remarkable shifts in trade flows between Asia and Europe, diversion of trade within Europe, heavy shipping traffic in the Arctic and a substantial drop in Suez traffic. Projected shifts in trade also imply substantial pressure on an already threatened Arctic ecosystem.

Towards a balanced view of Arctic shipping: estimating economic impacts of emissions from increased traffic on the Northern Sea Route

“…The Arctic sea ice retreat is opening up both the Northwest Passage (across Canadian Arctic waters) and the Northeast Passage (also known as the Northern Sea Route, NSR, passing along the Siberian north coast), during parts of the year. Both routes have potentially significant effects on global trade; NSR, for example, provides a distance reduction of up to 40% compared to the current Suez Canal route (referred to as the Southern Sear Route, SSR) for trade between Northern Europe and Eastern Asia (UCAM 2013; Bekkers et al 2016).…”

“…Several recent studies have looked at the possible economic and environmental impacts of Arctic shipping routes (Verny and Grigentin 2009;UCAM 2013;Lasserre 2014;ESRI 2014;AMAP 2015;Bekkers et al 2016;Bensassi et al 2016). Bekkers et al (2016) used specialised computable general equilibrium (CGE) and gravity trade models with multiple interlinked industry sectors in 100 countries.…”

“…Bekkers et al (2016) used specialised computable general equilibrium (CGE) and gravity trade models with multiple interlinked industry sectors in 100 countries. They estimate that 4.7% of the world's future trade (equivalent to around two thirds of the expected traffic otherwise going through the Suez Canal) could be re-routed through NSR in 2030 under the Bmiddle of the road^SSP2 socioeconomic scenario (Riahi et al 2017;O'Neill et al 2017), provided the route is navigable all year round.…”

“…The business restrictions facing shipping operators are missing both in the studies such as Smith and Stepherson (2013), Aksenov et al (2016) and Melia et al (2016) which more narrowly focus on technical marine accessibility in the Arctic under model sea ice projections, 3 as well as in the studies by Bensassi et al (2016) and Bekkers et al (2016) which model possible implications of NSR for global trade and economies in Europe and Asia. Our paper superimposes the business restrictions summarised by Hansen et al (2016) on the navigability projections and on the results from trade models and macroeconomic models to obtain new downscaled projections for the possible build-up of the traffic on NSR over the next two centuries.…”

“…Bekkers et al (2016) were the first to demonstrate that the indirect growth in emissions from European and East Asian economies can potentially offset the reduction in CO 2 associated with the shorter route. They did not consider non-CO 2 components, however.…”